Australia is proposing to introduce a new Corporate Collective Investment Vehicle (CCIV) in response to demands for an investment structure that matches the sophistication and size of Australia’s funds management industry.
The proposed CCIV, in conjunction with Australia’s participation in the Asia Region Funds Passport (Passport)1, is aimed at attracting more foreign investment into Australia and improving the competitiveness of Australia’s financial sector.
The proposed CCIV offers an investment structure that is more flexible and which conforms more closely with overseas investment models, compared to the unit trust-based managed investment scheme (MIS), which currently dominates Australia’s investment market.
The key features of a CCIV are founded on the UK’s open-ended investment company (OEIC) structure and the European investment fund structure established under the UCITS Directive. A CCIV comprises a new type of company limited by shares, with one or more sub-funds (much like “protected cell companies”) sitting beneath it that each carries out separate components of the CCIV’s activities. The sub-funds will be segregated by reference to the assets, liabilities and business referable to each sub-fund, as a means of quarantining the risks and liabilities of different investment ventures. In contrast to certain overseas regulatory schemes, a CCIV’s asset classes, gearing levels, and hedging or other investment decisions will not be restricted or prescribed by legislation.
Individual sub-funds of a retail CCIV can become Australian Passport funds upon registration on ASIC. Status as a Passport fund should enable the sub-fund to be more easily marketed to foreign investors. A CCIV may be retail or wholesale, with extra requirements for retail CCIVs (e.g. compliance plans and the inclusion of certain constitutional provisions).
Each CCIV will be required to have a single corporate director, which is conceptually analogous to the responsible entity of an MIS. The corporate director will be subject to various governance and functional requirements, and must hold an appropriate Australian financial services licence (AFSL) to operate the CCIV. The CCIV itself will be exempt from the requirement to hold an AFSL.
Depositaries2 will be mandatory for retail CCIVs (but optional for wholesale CCIVs). Depositaries are conceptually analogous to the custodian of an Australian MIS as one of their core functions is to hold the assets of the CCIV. To shield the depositary from possible influence or control by the CCIV or its corporate director, it and its related bodies corporate will need to meet certain independence requirements. The depositary will also need to hold an AFSL with appropriate authorisations, including additional functions to those required of a custodian of an Australian MIS.
CCIVs will be prohibited – at least initially – from being listed on prescribed financial markets. The Federal Government will revisit this issue once the CCIV regime is operational.
A critical factor in the success of the new CCIV structure will be the taxation treatment available to investors. The current exposure draft of the proposed taxation legislation is broadly aligned with the attribution managed investment trust (AMIT) tax regime (which allows investors to enjoy flow-through tax treatment and tax neutral outcomes, subject to certain eligibility criteria being met), but a range of technical points remain to be settled.
Public consultation on the legislative package for the CCIV framework is continuing, and Treasury has not confirmed the timing for introducing the CCIV legislation into Parliament. However, given that a Federal election is due by mid-May 2019, we expect there will be delays in the finalisation of the regime.
1. The Passport is scheduled to launch on 1 February 2019. Japan, Thailand and Australia have completed preparations for implementation of the Passport and the Republic of Korea and New Zealand are reportedly well advanced in the legal and regulatory requirements required in their respective jurisdictions (http://fundspassport.apec.org/2018/09/20/asia-region-funds-passport-joint-committee-meeting-september-2018/).
2. A depositary’s functions are to, amongst other things, hold the CCIV’s assets on trust for the CCIV in a segregated manner, execute lawful instructions in relation to the CCIV’s assets, and supervise certain aspects of the CCIV’s operations (including issuing, redeeming, cancelling and valuing shares in the CCIV).
Liability limited by a scheme approved under Professional Standards Legislation.
© ADDISONS. No part of this document may in any form or by any means be reproduced, stored in a retrieval system or transmitted without prior written consent. This document is for general information only and cannot be relied upon as legal advice.